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WEW Questions
Economist Walter Williams has posed 111 questions for microeconomics. Following are questions for which answers have been attempted by his students and others. 1-10 (1) Is it possible to have a situation of general equilibrium without having all individual optimality conditions fulfilled? Is it possible to have all individual optimality conditions fulfilled without the state of the system as a whole being Pareto optimal? WEW-001 (2) The concept of marginal utility is subject to the objection that it implies a numerical measurement of total utility. How can we overcome this difficulty? WEW-002 (3) Sketch the indifference curve mappings implied by each of the following... WEW-003 (4) Soviet planners do use open markets to permit relative prices to influence resource allocation. Briefly explain the role of prices in an economic system and the possible effects of restricting the role of prices. WEW-004 (5) In a situation with two commodities, X and Y, and starting with an individual's interior (non-corner) endowment, derive his demand curve for commodity X. Is the demand curve derived one with real income constant in the Hicksian or Slutsky sense? First, however, explain the Hicksian versus Slutsky demand curves. WEW-005 (6) In the present real world we seldom observe 'market clearing' prices. Sometimes we even observe zero prices. How can you account for these two phenomena that appear to contradict economic theory? WEW-006 (7) Imagine a community of individuals engaging in private production but where the idea of market exchange had not yet been discovered. Explain analytically the nature of the gains available after the discovery of exchange possibilities. Would every member of the community benefit, or might some be harmed as a result of the discovery? WEW-007 (8) What is an income-compensated demand curve? Carefully derive one graphically. How does it differ from an ordinary demand curve? For a normal good, which of the two curves is more elastic? Why? What might be an empirical use of an income-compensated demand curve? WEW-008 (9) Imagine a community of two individuals. Individual A's endowment shows him rich in good X and relatively poor in good Y. Individual B's endowment is just the opposite. Heretofore unknown exchange opportunities become available and known and the exchange rate for good X and Y that appears (it matters none to you from whence this exchange rate come) is equal to neither A nor B's subjective exchange rate. Explain analytically the nature of the gains from exchange. Would each member of the community benefit from exchange or is there a possibility that a loss might be incurred? Why? WEW-009 (10) Since 1900 real income has increased tremendously, yet the average number of children per family has decreased.' Consider the following possible explanations, and graphically illustrate in terms of market opportunities and indifference curves between the number of children (x) and all other goods (y). (a) Children are inferior goods; since we are richer we want fewer of them. (b) Children are not inferior goods; however, it has become more expensive to bear and raise children. © Children are not inferior goods, nor have they become relatively more expensive. What has happened is that tastes have changed. WEW-010 11-20 (11) Evaluate. 'Chinese labor is far less productive than American labor as evidenced by the fact that it takes so much of it to get jobs done. One the other hand, American wheat land is less fertile than wheat land in Europe (e.g., France) as evidenced by the lower yield per acre in the United States.' WEW-011 (12) Explain the following accurate statement: The gain from search activity is related to the dispersion of prices charged by different sellers. The gain is also related to the fraction of the individual's income spent of the good and its income elasticity. Give a real world example of a good whereby the buyer searches a little and another good whereby the buyer searches a lot. WEW-012 (13) Gresham's law states: "Bad goods drive out the good (goods)." However, we see good wine and bad wine, bad books and good books, bad women and good women; and bad economics professors and good ones. Reconcile Gresham's law with the evidence above. WEW-013 (14) What are the essential characteristics of exchange opportunities and production opportunities, on the social levels? WEW-014 (15) Repeats #1 (16) (a) Explain the meaning of the statement: "In the theory of demand, a demand function, such as Qa=F(Pa,Pb,I), is linearly homogenous of degree zero." (b) Demand curves are relatively more elastic in the long run than in the short-run. Explain. c) Explain the concepts of cardinal and ordinal utility. Discuss how the shortcoming of cardinal utility are resolved in ordinal utility, e.g., diminishing marginal utility. WEW-016 (17) "What does it mean if an indifference curve between goods X and Y (a) becomes parallel to the X axis, (b) is positively sloped and has higher indifference curves to its right, © is positively sloped and has higher indifference curves to its left, (d) is negatively sloped and has higher indifference curves to its left?" WEW-017 (18) Assume that the cost of a unit of search is the same for all goods and all have the same price variability in the absence of search. (a) Show that if the cost of search is proportional to income, the rich will search more and thus pay less for goods with income elasticities greater than unity and search less and pay more for goods with income elasticities less than unity. (b) On the basis of these results, do you expect the poor to pay more for goods? Are there policy implications in your findings which may increase the welfare of the poor? WEW-018 (19) "What are the four essential property of indifference curves between two goods? Explain the justification for each property." WEW-019 (20) What is the meaning of the expression "The optimum of the consumer"? WEW-020 21-30 (21) Characterize (graphically) a normal good, an inferior good, and an ultra-superior good. Give examples of each. For two goods X and Y, which of the above must they be if the Income Expansion Path (IEP) has a positive slope? What can you say if the (IEP) has a negative slope? WEW-021 (22) Demand curves tend to be more elastic in the long run than in the short run. Explain. WEW-022 (23) Which good will have a greater fall in its price as the crop is more fully harvested: one that will store more readily or one that is more perishable? Why? WEW-023 (24) Repeats #8 (25) Repeats #13 (26) Exchange consists of acts which allow the possibility of trading endowment elements with other members of society-- exchange opportunities only arise in a social context. Production opportunities represent alternative combinations attainable by transformation or dealing with nature. In exchange, the quantity supplied of a commodity must equal quantity taken --i.e., algebraic sum of supply and demand must equal zero for every commodity. Exchange conserves the social totals of commodities. Production alters the social totals, i.e., less of some goods, more of others. WEW-026 (27) Repeats #5 (28) Many shopping centers provide zero price parking for their clients. Some have argued that such policy leads to inefficient location of resources since to insure sufficient parking for center clientele space must be provided for "freeloaders" who shop at stores near the center. Who gains from the zero price parkings? How? Would it be economically more efficient for centers to allocate parking space by price? (Demsetz 1964) WEW-028 (29) Give brief (a sentence or two) comments to the following: (a) Demand curves tend to be more elastic in the long run than in the short run. (b) Men (persons) do not differ significantly from roaches. © Unemployment means that there are not enough jobs to go around. (d) The tendency for mechanics to charge women higher prices for a given emergency repair than that charged men. WEW-029 (30) Give brief (a sentence or two) comments to the following: (a) Is life priceless? What evidence can you offer to support your contention? (b) What do the concepts of externality and property rights have to do with allocation of resources? © A jet plan can fly across the U.S. three hours faster than a propeller plane. Which is more efficient? WEW-030 31-40 (31) Give brief answers to the following: (a) "Fishing in the ocean leads to too many resources being devoted to fishing." Evaluate, but first explain what is meant by "too many." (b) The tendency for married couples with small children (who require baby-sitting) to spend more on entertainment when they do go out than married couples without children. Why? © Laissez-faire capitalism encourages deceitful advertising, dishonesty and faithlessness. Comment. (d) The function of assigned property rights is that of internalizing externalities. Comment. WEW-031 (32) Repeats #1 (33) Repeats #19 (34) No question (35) Economists sometimes say that monopoly is "inefficient". Explain the meaning of "inefficiency" in this context. Show analytically how this inefficiency comes about. WEW-035 (36) (a) In a situation with two commodities X and Y, starting with an individual's interior (non-corner) endowment derive his demand curve for commodity X. Is this an "excess-demand" curve or a "full-demand" curve? (b) Explain Friedman's concept of the "real-income-constant" demand curve. Is the demand curve just derived one with real-income-constant in his sense? WEW-036 (37) Repeats #14 (38) It has been said that exchange makes possible new types ofproductive opportunities as well, through the institution of the firm. Analyze. WEW-038 (39) Assuming an ordinary-shaped long-run average-cost curve in advance of any "fixed-cost" commitment (a so-called "planning curve"), indicate the shape of the relevant average-cost after such a commitment: (a) If the "fixed costs" were expended to purchase durable inputs that were perfectly unspecialized to the firm. (b) If they were expended to purchase inputs that were perfectly specialized. Justify and explain. Do not consider Alchian "volume-effects", or transition and costs (haste premiums). 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